Real Estate Quarterly Dialogue 1Q12 v3 · Real Estate QUARTERLY DIALOGUE ... The commercial mortgage‐backed securities ... % of pool with full IOs 16.7% 8.3% 55.5%

Q U A R T E R L Y D I A L O G U E

Distressed Real EstateT H I R D Q U A R T E R 2 0 1 0

Real EstateQ U A R T E R L Y D I A L O G U E F I R S T Q U A R T E R 2 0 1 2

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1Q12 Highlights

Nearly two years after the Dodd‐Frank Wall Street Reform and Consumer Protection Act was passed,

uncertainty prevails regarding how regulatory changes such as risk retention, the Volcker Rule and Basel III capital requirements will be implemented.

Fallout from the European debt crisis and concerns over the U.S. economy resulted in depressed CMBS issuance levels in the first quarter 2012 and fourth quarter 2011. CMBS issuance was approximately $6 billion in both the first quarter 2012 and the fourth quarter 2011, after averaging $8.5 billion a quarter for the four prior periods.

Underwriting standards have loosened steadily over the past two years. Rating agencies have indicated that additional credit enhancement for the senior bonds will be required if standards continue to decline in 2012.

In response to S&P rating actions in July 2011, CMBS issuers such as Goldman Sachs, Citigroup, JPMorgan Chase & Co., Deutsche Bank and Morgan Stanley have bypassed S&P’s credit ratings since then and have turned instead to newcomers, Kroll Bond Ratings, Inc. and Morningstar.

CMBS delinquencies increased during the first quarter as 5‐year loans originated in 2007 matured. Office loans are expected to make up a greater component of defaults in the near term as 2007 leases roll into lower‐rent environments.

THIRD QUARTER 2010 QUARTERLY D I A LOG UE

INVESTMENT BANKING • RESTRUCTURING • VALUATION & FINANCIAL RISK MANAGEMENT

Realizing Value … Delivering Results Atlanta • Chicago • New York • San Francisco

Investment banking, private placement, merger, acquisition and divestiture services offered through Navigant Capital Advisors, LLC. Member FINRA/SIPC.

U.S. CMBS Quarterly Issuances($ in billions)

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Monthly CMBS Delinquencies: Unpaid Balance($ in billions)

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Real EstateQUARTERLY DIALOGUE

FIRST QUARTER 2012




June 2012 To The Friends and Clients of Navigant Capital Advisors (“NCA”): We are pleased to once again share with you Navigant Capital Advisors’ (NCA) Real Estate Quarterly Dialogue continuing our coverage of key trends, news, and metrics most relevant to fund managers, investors and creditors. In this edition, we provide our perspective in “The Changing Landscape of CMBS: Moving to CMBS 2.0.” The commercial mortgage‐backed securities (“CMBS”) industry has undergone a transformation in recent years that prompted industry participants to coin the phrase “CMBS 2.0” in an attempt to distinguish between CMBS loans originated prior to the sudden, dramatic cessation of CMBS lending activities at the end of 2007 (“CMBS 1.0”) and those loans originated after lending resumed at markedly different volumes and terms in 2010 (“CMBS 2.0”). The historic shift in the dominant industry players and the preferred rating agencies is also discussed. Additionally, Navigant’s proprietary “Value Change Index” is presented, a measurement of the quarterly relative change in value of various asset classes – office, industrial, retail, and multi‐family ‐ for various geographic markets. Excerpts from the media follow, with a focus on the indicators of distress including bankruptcies, defaults, and auditor going concern doubts that have occurred during the second quarter. Finally, we present metrics from a universe of REITs to gauge the health of the public markets in four sectors: office, industrial, retail, and residential. Navigant Capital Advisors is the dedicated corporate finance business unit of Navigant Consulting, Inc. (NYSE: NCI). Navigant is a specialized independent consulting firm providing financial, operational, dispute and regulatory advisory services to large companies, financial institutions, legal counsel and government agencies facing the challenges of uncertainty, risk, distress and significant change. We offer independent and objective advice supported by advanced technical skills, proven competence and in‐depth industry knowledge. We welcome your comments and hope that you find our Quarterly Dialogue informative.

Darin L. Buchalter Edward R. Casas Managing Director Senior Managing Director Head of Real Estate Practice Head of Navigant Capital Advisors Investment banking, private placement, merger, acquisition and divestiture services offered through Navigant Capital Advisors, LLC. Member FINRA/SIPC.

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NCA Real Estate Solutions

Strategic Assessment

» Project feasibility analysis » Asset / Portfolio positioning and

pricing » Alternative / Best Use Analysis

Valuation

» Relevant market research » Asset / Portfolio appraisals » Mark-to-market studies

Restructuring

» Alternatives analysis » Plan development & execution –

in-court or out-of-court » Inter-constituent negotiations and

communications

Operations & Development

» Interim asset / fund portfolio management

» Development & construction completion

» Sales and marketing execution

Transaction Solutions

» Recapitalizations » Sell side / Buy side structuring and

execution » Fairness opinions » Liquidity solutions

Comprehensive Scope andProven Results …

Continued market turbulence has left fund managers, investors and creditors looking for solutions.

Navigant Capital Advisors (NCA) professionals have the experience and resources to assist real estate investors and creditors in meeting the challenges of today’s markets, having restructured over $50 billion of real estate assets.

Whether addressing the needs associated with a single asset, or an entire portfolio, Navigant provides a comprehensive service offering with core strengths in: Strategic Assessment, Valuation, Restructuring, Operations & Development, and Transaction Solutions.

Our deep network of relationships includes key players from throughout the real estate, construction and financial services sectors.

Navigant professionals possess the expertise required to actively advise and implement solutions for complex projects, portfolios, and capital structures in all real estate asset classes including office, hospitality, retail, industrial and residential.

Key Contacts: For additional information, feel free to contact the NCA Real Estate Solutions team: Edward R. Casas Senior Managing Director Head of Navigant Capital Advisors Chicago, IL 847.583.1619 [email protected] Darin L. Buchalter Managing Director Head of Real Estate Practice San Francisco, CA 415.356.7126 [email protected] Mitchell C. Hochberg Senior Advisor, Development & Operations New York, NY 212.940.6218 [email protected] Neil F. Luria Managing Director, Restructuring Cleveland, OH 216.321.5606 [email protected] Gregory F. Hagood Managing Director, Investment Banking Atlanta, GA 404.504.2017 [email protected] Alan J. Mustacchi Managing Director, Investment Banking New York, NY 646.227.4348 [email protected] Jack D. Huber Director, Restructuring Chicago, IL 847.583.1622 [email protected]

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REAL ESTATE QUARTERLY DIALOGUE

First Quarter 2012

TABLE OF CONTENTS

The Changing Landscape of CMBS: Moving to CMBS 2.0 1

The Value Change Index 9 Office 10 Industrial 11 Retail 12 Single Family Residential 13 Multifamily Residential 14

Distressed Market Indicators and News 15

Navigant’s Real Estate Investment Trust (REIT) Universe 22 ©2012 Navigant Capital Advisors, LLC. All rights reserved. Navigant Capital Advisors, LLC (Member FINRA, SIPC) is a wholly owned broker/dealer of Navigant Consulting, Inc. Navigant Consulting is not a certified public accounting firm and does not provide audit, attest, or public accounting services. See www.navigant.com/licensing for a complete listing of private investigator licenses. NCA gathers its data from sources it considers reliable. However, it does not guarantee the accuracy or completeness of the information provided within this publication. Any opinions presented reflect the current judgment of the authors and are subject to change. NCA makes no warranties, expressed or implied, regarding the accuracy of this information or any opinions expressed by the authors. (Officers, directors and employees of Navigant Consulting, Inc. and its subsidiaries may have positions in the securities of the companies discussed.) This publication does not constitute a recommendation with respect to the securities of any company discussed herein, and it should not be construed as such. NCA or its affiliates may from time to time provide investment banking or related services to these companies. Like all NCA employees, the authors of this publication receive compensation that is affected by overall firm profitability.

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The Changing Landscape of CMBS: Moving to CMBS 2.0

The commercial mortgage‐backed securities (“CMBS”) industry has undergone a transformation in recent years that prompted industry participants to coin the phrase “CMBS 2.0” in an attempt to distinguish between CMBS loans originated prior to the sudden, dramatic cessation of CMBS lending activities at the end of 2007 (“CMBS 1.0”) and those loans originated after lending resumed at markedly different volumes and terms in 2010 (“CMBS 2.0”). In addition to the underwriting, regulatory and structural changes that are commonly captured in a discussion of CMBS 2.0, there has also been a historic shift in the dominant industry players and the preferred rating agencies. CMBS 2.0 As a consequence of the financial market crisis in 2008, investors and regulators demanded that certain infirmities of the CMBS loan underwriting and documentation process be rectified. The differences between CMBS 1.0 and CMBS 2.0 primarily relate to more conservatism and enhanced transparency in underwriting, greater risk retention by originators, and structural improvements to management and decision making within the CMBS pools. This chart illustrates the clear difference between two 2011 CMBS transactions and the average for 2007 vintage CMBS, as compiled by Fitch Ratings. Note the meaningful difference in sizing, debt service coverage, loan structure and pricing.

Source: Credit Suisse and Fitch Ratings

Comparison of 2011 CMBS Transactionsand Average 2007 Vintage CMBS

WFRBS 2011‐C4 DBUBS 2011‐LC3 Average 2007Pool Principal Balance $1.48 b $1.39 b $3.25 b

Number of Loans 76 43 218

Underwritten DSCR 1.79 1.71 1.34

Fitch Stressed DSCR 1.33 1.34 1.05

Underwritten LTV 61.5% 58.0% 71.7%

Fitch Stressed LTV 89.3% 91.9% 111.0%

% of pool with full IOs 16.7% 8.3% 55.5%

% of pool with partial IOs 3.1% 35.4% 61.6%

Subordination to AAA 16.9% 20.9% 11.8%

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Underwriting Standards Remain In Check Considering the same metrics for two transactions from March 2012, underwriting standards have become less conservative, with stressed loan‐to‐value ratios increasing and stressed debt service coverage ratios decreasing. That said, sizing and loan structure remain conservative. In an early 2012 report, Fitch indicated that it would increase credit enhancement levels if standards continue to decline during 2012. Similarly, Moody’s raised a red flag concerning underwriting standards stating that the deals in the pipeline for the second quarter 2012 were reaching average loan‐to‐value ratios that exceeded 100%. Investor Protections Maintained Loan origination requirements under CMBS 2.0 also include investor protections that extend beyond closer scrutiny to valuation and cash flow assumptions. Under current deals, nearly every transaction has some form of cash management or lockbox structure, while the form varies depending upon the property type. The requirement for cash management was driven, in part, by the bankruptcy of General Growth Properties (“GGP”). The bankruptcy court permitted certain special purpose entity (“SPE”) property‐level debtors to upstream excess cash flow to the GGP parent company to obtain debtor‐in‐possession financing. If hard cash management requirements were in place at the property level SPEs at the time of the bankruptcy filing, this would not likely have occurred. Additionally, the GGP bankruptcy reinforced the need for strict compliance with the criteria to meet the definition of a bankruptcy‐remote, special purpose entity. These requirements existed under CMBS 1.0; however, many borrowers were able to negotiate less stringent terms – a situation that is unlikely to occur under CMBS 2.0. A further impact of the GGP bankruptcy is evident in the significant changes to the definition of an “independent director” under CMBS 2.0. Borrowers are now required to use a nationally‐recognized company to provide professional independent directors and they may not replace the independent director without 30 days prior written notice to the lender. Non‐recourse carve‐outs provide another illustration of lessons learned from the financial crisis. Given the non‐recourse nature of CMBS, most CMBS 1.0 loans contained provisions which provided liability to the borrower or its affiliates in the case of certain “bad boy” actions, including, among other things, the loan becoming fully

Source: Credit Suisse

March 2012 CMBS Transactions

MSC 2012‐C4 WFRBS 2012‐C6Pool Principal Balance $1.10 b $0.93 b

Number of Loans 38 89

Underwritten DSCR 1.66 1.58

Moodyʹs Stressed DSCR 1.18 1.16

Underwritten LTV 58.4% 61.1%

Moodyʹs Stressed LTV 90.5% 94.7%

% of pool with full IOs 0.6% 1.0%

% of pool with partial IOs 19.5% 19.8%

Subordination to AAA 19.9% 19.1%

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recourse for any voluntary bankruptcy filing. Recent court action has held these guarantees as enforceable and under CMBS 2.0, the guarantees will be even more prevalent than under CMBS 1.0. The CMBS 2.0 modifications related to risk retention were driven by the anticipated requirements of the Dodd‐Frank Wall Street Reform and Consumer Protection Act (“Reform Act”); however, since the Reform Act was signed into law in July 2010, the process of regulatory change has been slow and cumbersome. (For a discussion of the initial requirements of the Reform Act, see the Distressed Real Estate Quarterly Dialogue, Second Quarter 2010.) Nearly two years after the Act was passed, uncertainty prevails regarding how regulatory changes such as risk retention, the Volcker rule and Basel III capital requirements will be implemented. Risk Retention Mandate The Reform Act included a risk retention mandate whereby lenders would be required to retain at least 5% of a loan on their books as “skin in the game” if the loan was sold and/or repackaged with other loans and securitized. The proposed rules provided for an exemption to the risk retention requirements; however, this provision and other significant changes to the rules were so contentious and the comments from industry groups were so extensive that the original comment period had to be extended. One of the most heated issues revolves around the qualified residential mortgage (“QRM”) exemption to the risk retention rule. A QRM must meet strict underwriting requirements including a 20% down payment requirement, maximum borrower debt‐to‐income ratios, and a maximum loan‐to‐value ratio of 80%. The proposed rules exempt RMBS issued or guaranteed by the federal government, including those issued by Fannie Mae and Freddie Mac, while only exempting other RMBS if all assets in the pool are QRMs. The disparity of the treatment is glaring because, according to testimony by Tom Deutsche before the Committee on Financial Services of the House of Representatives, less than 20% of the loans purchased or securitized by Fannie Mae and Freddie Mac from 1997 to 2009 would have qualified as QRMs. The proposed rules also included onerous requirements not in the original language of the Reform Act. In particular, the proposed rules require CMBS sponsors to establish a “Premium Capture Cash Reserve Account” in order to seize any retained premium or excess spread that is monetized (such as from the sale of interest‐only bonds) at the closing of a securitization. The amount in the Premium Capture Cash Reserve Account would be in a first‐loss position, ahead of the newly imposed 5% retention and the issuer could not collect the balance until the end of the life of the securitization transaction. This would prevent issuers from taking their profit upfront as they do now by selling the excess interest in the form of an interest‐only strip sold at issuance. Under the proposed rules the CMBS issuers could satisfy the 5% retention requirement through a third‐party purchaser of the B‐piece. Unfortunately, the rules were unclear regarding whether the 5% was referring to the face amount or the purchase price of the B‐piece. If the 5% was based on the purchase price, the B‐piece buyer would have to purchase substantial portions of additional bonds. Additionally, if the B‐piece buyer was also the special servicer and retained the 5% risk, they must include an “operating advisor” within the structure. This requirement will likely discourage the acquisition of B‐pieces since the operating advisor must be consulted on all loan workouts and could remove a special servicer for cause. Historically, B‐piece buyers insisted on control of the appointment of the special servicers in order to protect their investment.

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Operating advisors, also known as trust advisors, have already been introduced to CMBS deals in about half of the private label transactions since 2009; however, as currently structured, the advisors have far less power than under the proposed rules. As the rules currently stand, industry participants are concerned that the risk retention rules materially change the business model for CMBS, increasing costs and reducing the incentive for banks to securitize loans which may further constrain a crucial source of capital for the commercial real estate industry. Due to the complexity of the issues, final rules have not been issued and regulators may issue an updated proposal for comment in the second half of 2012. Two additional components of the Reform Act that impact CMBS issuers are the Volcker Rule and the capital adequacy requirements. Volcker Rule The Volcker Rule prohibits banks from engaging in proprietary trades, owning interest in or sponsoring a private equity or hedge fund, and making risky investments on their own behalf with federally insured deposits. The objective is to limit the exposure of financial institutions to credit‐default swaps and other risky investments that contributed to the 2008 financial services collapse. Although financial services groups maintain that the limitations will damage market liquidity as well as their ability to compete in a global economy, the legislation has received increased support in light of the $2 billion trading loss reported by JP Morgan Chase in May 2012 on the bank’s “synthetic credit portfolio.” Regulators are still working through comment letters to finalize the language, but the Volcker Rule is expected to be formally adopted by federal regulators in July 2012. Following adoption, there is a two‐year “conformance period” in which banks are required to show a “good faith” effort to comply with the rules. There is much confusion regarding what will constitute “good faith” efforts, further illustrating the difficulty that regulators have faced in writing and implementing all of the regulations required by the Reform Act. Capital Adequacy Requirements The new standards on risk‐based capital adequacy, known as Basel III, introduce new regulatory requirements over bank liquidity and leverage. Basel III capital rules require banks to hold minimum capital levels to buffer against future losses. In particular, banks will be required to hold greater amounts of capital against certain types of mortgages and all below‐investment grade and unrated tranches of securitizations. This requirement will raise the cost to market makers of holding CMBS, especially for those securities with the most risk. The likely result is that dealers would reduce their holdings of CMBS, damaging the liquidity of the sector, especially for bonds that are not at the top of the capital stack. The middle stack portion of CMBS currently has little demand and this will likely get thinner with the change in capital requirements. The proposed Basel III requirements will also have an adverse impact on banks with a material amount of mortgage servicing rights (“MSR”). Under current capital requirements, banks can use 100% of the value of the MSRs as Tier 1 capital; however, the proposed Basel III rules will limit MSRs to 10% of Tier 1 capital. This will

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result in banks having to put up more capital or reduce the value of servicing rights. In this likely future environment, many banks are electing to sell their mortgage servicing portfolios. Industry Players Exit Category The volatility in CMBS has forced banks to curtail their origination of mortgages intended for securitization. In November 2011, Credit Suisse Group decided to close its U.S. CMBS origination platform after only recently hiring a new team. Credit Suisse had attempted to re‐enter the market in 2010 but was not able to securitize the loans it had originated before the CMBS recovery stalled in the third quarter of 2011. Prior to the recession, Credit Suisse was a major player in the securitized market. According to league tables published by Commercial Mortgage Alert, in 2006 Credit Suisse was the second largest contributor of collateral supplied to U.S. securitizations backed by newly originated mortgages, with $16.0 billion contributed, second only to Wachovia’s $20.6 billion. In 2007, Credit Suisse contributed $14.7 billion in loans to U.S. CMBS deals, coming in fourth behind Wachovia ($24.2 billion), Bank of America ($15.6 billion) and Lehman Brothers ($14.8 billion).

The CMBS league tables have changed dramatically since the peak of the market. Of the top 20 contributors to U.S. CMBS deals in 2007, five companies were casualties of the credit crisis: Wachovia, Lehman Brothers, Bear Stearns, Merrill Lynch and Countrywide. These five companies contributed an aggregate of $63.9 billion of loans representing nearly 29% of all loans contributed to U.S. CMBS deals in 2007. Additionally, the total number of players in the market has substantially decreased. In 2007, 43 companies contributed to U.S. CMBS deals, whereas in 2011 only 18 companies contributed loans to U.S. CMBS deals. The top 10 contributors in 2011 comprised 93% of the volume compared to less than 60% for the top 10 contributors in 2007.

Top Loan Contributors to U.S. CMBS DealsCollateral supplied to U.S. securitizationsbacked by recently originated mortgages

First Quarter 2012 First Quarter 2011($ in mil) % of total ($ in mil) % of total

1 Deutsche Bank 1,043.3$ 22.0% 996.3$ 12.1%

2 Morgan Stanley 817.7 17.2% 1,179.6 14.3%

3 Goldman Sachs 528.3 11.1% 1,141.7 13.9%

4 Citigroup 520.4 11.0% 529.4 6.4%

5 Wells Fargo 506.1 10.7% 586.2 7.1%

6 Ladder Capital Finance 393.4 8.3% 359.4 4.4%

7 Bank of America 281.0 5.9% 368.8 4.5%

8 RBS 210.0 4.4% 528.7 6.4%

9 Guggenheim Partners 129.5 2.7% ‐ 0.0%

10 Archetype Mortgage Capital 105.6 2.2% ‐ 0.0%

Others 208.9 4.4% 2,552.3 31.0%

Total 4,744.2$ 100.0% 8,242.4$ 100.0%

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Rating Agency Changes In addition to the shift in CMBS loan originators, the market has seen an unprecedented change in the agencies selected to rate securitizations. Standard & Poor’s, the world’s largest credit‐rating agency, had historically been one of the two top‐ranked agencies based on the volume of CMBS transactions rated; however, market sentiment was altered dramatically in mid‐2011. S&P was displaced from its lead position due to its own actions in July 2011 when it withdrew the bond ratings on a $1.5 billion offering by Goldman Sachs and Citigroup five days after it had been placed with investors. The deal had to be shelved, putting Goldman Sachs in the position of reimbursing buyers for losses they incurred when the deal was withdrawn in order to protect its reputation. With this action, S&P lost credibility with Wall Street banks and since then, Goldman Sachs, Citigroup, JPMorgan Chase & Co., Deutsche Bank and Morgan Stanley have bypassed S&P’s credit ratings and have turned instead to newcomers, Kroll Bond Ratings, Inc. and Morningstar. First Quarter Deals Fallout from the European debt crisis and concerns over the U.S. economy resulted in depressed CMBS issuance levels in the first quarter 2012 and fourth quarter 2011 after a strong start in early 2011. CMBS issuance was approximately $6 billion in both the first quarter 2012 and the fourth quarter 2011 after averaging $8.5 billion a quarter for the four prior periods. Although deal volume remained low during the first quarter, demand from investors looking for higher‐yielding investment grade assets in a prolonged low‐interest‐rate environment helped push yields on new issue AAA CMBS securities lower than expected. Another positive sign in the capital markets was the closing during the first quarter 2012 of a CMBS deal supported primarily by delinquent loans. The nonperforming loans were aggregated by Rialto Capital Management, a distressed investment firm owned by home builder Lennar Corp and underwritten by JP Morgan Chase. The CMBS are the first of this type since the 1990’s when regulators used similar methods to dispose of troubled assets after the savings‐and‐loan crisis. The bond proceeds financed about 59% of Rialto’s $224 million purchase price, which represented 43% of the loans unpaid principal balance. Rialto supplied 282 loans to the deal, of which 224 were nonperforming. The

Rating Agencies for CMBS IssuedU.S. CMBS

2011 Issuances 2010 Issuances

($ in mil)# of Deals

Market Share ($ in mil)

# of Deals

Market Share

1 Moodyʹs 25,321.3$ 28 77.4% 7,345.6$ 11 63.1%

2 Fitch 23,122.1 26 70.7% 6,355.7 9 54.6%

3 Morningstar 8,557.6 13 26.2% 2,195.1 5 18.9%

4 S&P 7,939.9 11 24.3% 6,599.3 9 56.7%

5 DBRS 6,613.6 8 20.2% 2,936.3 3 25.2%

6 Kroll 2,844.2 6 8.7% ‐ ‐ 0.0%

Total 32,706.3$ 43 11,632.7$ 21

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market responded positively to the offering which will likely accelerate similar deals in the market. Moody’s indicated in a press release that at least five funds have expressed interest in such deals. Additional deals of this type could be instrumental in helping to clean‐up the estimated $75 billion to $100 billion of distressed commercial debt. Delinquencies The positive trend in delinquencies reversed in March 2012. After decreasing for four consecutive months, the delinquent unpaid balance of CMBS increased by $1.7 billion in March 2012. As reported by Morningstar, the balance of delinquent CMBS loans in March 2012 ($59.2 billion) represented 8.26% of the outstanding balance of CMBS, an increase of 8.15% over December 2011 levels. The changes in both the delinquent unpaid balance and the delinquency rate continues to be impacted by the size and amount of loan liquidations, modifications, extensions and resolutions, along with new balloon maturity defaults. Not included in delinquencies is the ever‐increasing category of balloon loans that are past maturity but current on their interest payments. As of May, Trepp reported that these loans account for 1.18% of all loans in the Trepp CMBS database. If these loans were considered delinquent, the overall delinquency rate would have been 11.22% as of the end of May, an increase of 1.18% compared to the reported rate. For fixed‐rate conduit loans, Fitch reported a cumulative default rate of 12.96% as of March 2012, compared to 12.71% at December 2011. Newly defaulted loans in the first quarter totaled $1.7 billion, with office loans comprising 49% of the balance. Fitch expects that office loans will continue to make up a greater component of defaults in the near term as leases signed at the height of the market are rolling into lower rent environments. Retail loans were the second largest contributor to new defaults, making up 29% of the balance. A prolonged economic downturn continues to impact consumer spending resulting in store closings with second tier malls and single tenant big box centers experiencing the greatest impact. Overall, modifications and liquidations have helped hold the delinquency rate relatively stable over the past year. By balance, larger loans (over $50 million) dominate loan modifications. Credit Suisse reported that larger loans made up nearly three quarters of the total amount of material modifications. Not surprisingly, the 2007 vintage loans had the greatest amount of modifications by balance, with the 2005 vintage being the next largest contributor to modifications.

Monthly CMBS Delinquencies: Unpaid Balance($ in billions)

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Source: Morningstar/Realpoint

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Although modifications prevent the delinquency levels from escalating, it is important to consider the material changes in the trust cash flow that may result. As an example, the Beacon Seattle and DC Portfolio, financed by a $2.7 billion loan which was the second largest commercial loan ever securitized, received material modifications in December 2010 which impacted the six conduit deals and one CDO that held portions of its loan. The modifications included a 5‐year extension to 2017 and an interest rate reduction from 5.8% to 3% as long as certain sale rate hurdles were met. These changes created interest shortfalls due to the difference between the pay rate and the accrual rate that reached into the investment grade bonds originally rated AA and BBB. Additionally, if the Beacon loans had gone into default, the delinquency rate for the entire CMBS universe would have increased by 44 bps based on a Credit Suisse analysis. Originations Commercial and multifamily mortgage loan originations for the first quarter 2012 were 36% higher than the first quarter 2011 and 12% lower than the fourth quarter of 2011, based on the Commercial / Multifamily Mortgage Bankers Originations Index. The decrease from the fourth quarter reflects the industry pattern of heavy year‐end volume followed by subsequent drop‐offs in first quarter volume. Although commercial bank portfolios increased by 104% compared to last year’s first quarter, there was a 10% decrease in loans for conduits for CMBS in the same period. Additionally, between the fourth quarter of 2011 and the first quarter of 2012, originations of conduit loans decreased 25%. The demand for financing will accelerate as maturing loans require refinancing and as property transaction volume accelerates. “The low interest rates and stabilization in commercial real estate fundamentals that raised origination levels by 55 percent in 2011 are continuing to buoy activity in 2012,” per Jamie Woodwell, Mortgage Bankers Association’s Vice President of Commercial Real Estate Research.

Outlook

The myriad of economic and regulatory issues that impact the CMBS market will continue to shape the availability, terms and participants in this crucial source of capital. The efficiency of this market is a key indicator of the pace of recovery in the commercial real estate market. Accordingly, we remain conservative in our outlook and offer that recovery will remain specific to asset class and geography for the remainder of the year.

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Navigant’s “Value Change Index”

The following pages present Navigant’s proprietary “Value Change Index” (VCI) for the office, industrial, retail, and multi family markets. The VCI for residential (single family) uses the Case‐Shiller Home Price Indices from S&P and reindexes the data to First Quarter, 2007. Navigant’s VCI measures the quarterly relative change in value of selected asset classes – office, industrial, retail, multi family ‐ for various geographic markets, benchmarked to First Quarter, 2007. Specifically, the VCI uses the direct capitalization methodology to measure the relative change in value (dollar psf) of an asset class for selected markets on a quarterly basis. The following variables are used in calculating the VCI: (i) rent (FS or NNN); (ii) vacancy rate; (iii) operating expense (for non‐NNN assets); and (iv) capitalization rates. Formulas are as follows:

Office: ([Full Service Rent * (1 – Total Vacancy)] – Operating Expense) / Cap Rate

Industrial and Retail: [NNN Rent * (1 – Total Vacancy)] / Cap Rate

Multifamily: ([Effective Rent * (1 – Vacancy)] * (1 – Operating Expense Ratio)) / Cap Rate

Korpacz reports the following range of cap rates for all asset types: (i) minimum, (ii) average and (iii) maximum for each market. Navigant then calculates the “Low Cap Rate” by determining the midpoint between the minimum and average cap rate and “High Cap Rate” by determining the midpoint between the average and maximum cap rate. Finally, the “Low Cap Rate” for all cities (except for the National market) is applied, as properties are located predominately in the CBD of major cities. For the National market, Navigant uses the average to reflect the fact that not all cities are core markets. Below is a key describing the cities/regions presented on the following pages:

Code Market Region Code Market RegionNAT National National MIA Miami SoutheastATL Atlanta Southeast NYC New York City NortheastBOS Boston Northeast PHX Phoenix WestCHI Chicago Midwest SFO San Francisco WestDAL Dallas Southwest SJO San Jose WestHOU Houston Southwest SEA Seattle WestLAS Las Vegas West WDC Washington, D.C. Mid‐AtlanticLAX Los Angeles West

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MidwestMid-AtlanticNortheastSoutheastSouthwestWest

QTR NAT ATL BOS CHI DAL HOU LAS LAX MIA NYC PHX SFO SJO SEA WDC2008q1 121 112 115 176 111 154 120 165 134 126 102 121 150 146 1042008q2 120 108 112 183 115 159 118 159 139 119 93 118 148 147 1032008q3 113 106 142 173 115 155 117 163 142 118 89 109 148 149 1032008q4 107 103 125 154 110 156 109 132 138 103 81 101 137 142 1022009q1 98 97 115 137 105 161 105 124 126 88 76 84 129 108 1012009q2 88 79 103 123 103 143 99 110 120 71 68 65 105 89 942009q3 82 74 101 110 94 113 93 98 108 66 56 53 87 72 882009q4 75 72 87 104 90 109 81 91 102 48 55 49 74 64 872010q1 71 66 78 101 81 111 75 83 86 43 47 45 71 65 862010q2 72 64 87 101 79 114 79 83 80 46 40 48 68 73 842010q3 73 63 90 102 77 112 83 71 82 47 39 51 73 76 942010q4 79 62 88 101 80 116 89 81 85 53 37 49 73 79 982011q1 92 75 114 107 83 136 83 88 92 55 39 61 90 87 1102011q2 99 75 113 109 87 138 79 89 92 63 40 68 85 88 1242011q3 100 74 102 111 87 145 79 90 91 66 39 74 92 88 1272011q4 103 77 97 108 87 159 81 97 96 68 38 81 90 92 1292012q1 98 75 93 109 88 166 76 93 90 68 37 104 88 95 130

Variance07q1 ‐ 12q1 ‐2% ‐25% ‐7% 9% ‐12% 66% ‐24% ‐7% ‐10% ‐32% ‐63% 4% ‐12% ‐5% 30%Max ‐ 12q1 ‐19% ‐37% ‐34% ‐41% ‐23% 0% ‐37% ‐44% ‐36% ‐46% ‐67% ‐14% ‐41% ‐37% 0%11q4 ‐ 12q1 ‐4% ‐2% ‐4% 0% 2% 5% ‐6% ‐4% ‐6% 0% ‐1% 29% ‐3% 3% 1%11q1 ‐ 12q1 7% 0% ‐18% 2% 7% 22% ‐7% 6% ‐2% 24% ‐5% 72% ‐2% 9% 18%

Regional Value Change IndexOffice (Class A)

Nationally, the Office VCI decreased 4% during the quarter. San Francisco continues to experience the highest growth rate,

increasing 29% for the quarter and 72% year‐over‐year.

Source: CoStar, Korpacz Real Estate Investor Surveys, BOMA Experience Exchange Report, and U.S. BLS

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40

50

60

70

80

90

100

110

120

130

140

150

160

Inde

x (2

007q

1 =

100)



Variance07q1 ‐ 12q1 ‐19% ‐25% ‐4% ‐14% ‐18% ‐6% ‐44% ‐32% ‐8% ‐15% ‐37% ‐37% 7% ‐14% ‐49%Max ‐ 12q1 ‐25% ‐25% ‐23% ‐32% ‐23% ‐23% ‐46% ‐45% ‐13% ‐51% ‐38% ‐39% ‐13% ‐29% ‐52%11q4 ‐ 12q1 1% ‐3% 3% 3% 3% 0% 0% ‐4% ‐4% ‐2% 3% 11% 1% ‐1% ‐10%11q1 ‐ 12q1 6% ‐1% 3% ‐2% ‐9% 7% 0% 6% 14% 6% 5% 21% 5% 4% ‐11%

The Washington, DC Industrial market continued to decline, with a decrease of 10% for the quarter, while San Francisco

gained 11% for the quarter and 21% year‐over‐year.


Regional Value Change IndexIndustrial (Class A, B & C)

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60

70

80

90

100

110

120

Inde

x (2

007q

1 =

100)



Variance07q1 ‐ 12q1 ‐9% 7% ‐20% 0% 2% ‐12% ‐35% 6% ‐5% ‐28% ‐19% ‐1% ‐30% 15% 0%Max ‐ 12q1 ‐13% ‐13% ‐26% ‐8% ‐3% ‐12% ‐39% ‐13% ‐9% ‐34% ‐26% ‐14% ‐30% ‐1% ‐9%11q4 ‐ 12q1 ‐1% 1% 2% 2% 0% 2% 2% 4% 6% ‐10% 2% 1% 4% 7% ‐3%11q1 ‐ 12q1 1% 6% 4% 4% 1% 4% 2% 7% 7% ‐14% 1% 14% 1% 13% 0%

Nationally, the Retail VCI has been relatively flat for five consecutive quarters. Seattle led the retail market

with 7% quarterly growth.


Regional Value Change IndexRetail (Class A)

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50

60

70

80

90

100

110

Inde

x (2

007q

1 =

100)


QTR NAT ATL BOS CHI DAL HOU LAS LAX MIA NYC PHX SFO SJO SEA WDC2008q1 86 94 94 90 97 n/a 74 78 76 93 77 80 n/a 96 862008q2 82 91 94 88 96 n/a 69 73 69 91 70 74 n/a 93 812008q3 78 88 92 85 96 n/a 63 68 64 89 63 66 n/a 90 782008q4 74 84 90 80 93 n/a 57 64 59 86 56 61 n/a 85 732009q1 70 79 87 74 92 n/a 51 61 54 82 49 56 n/a 80 702009q2 69 79 88 74 94 n/a 47 60 53 81 48 58 n/a 78 712009q3 71 80 89 76 95 n/a 45 62 53 81 49 61 n/a 78 742009q4 71 80 90 74 96 n/a 45 64 53 80 51 63 n/a 78 742010q1 72 78 91 73 95 n/a 45 65 53 80 51 66 n/a 78 742010q2 72 80 91 73 95 n/a 44 65 53 81 50 66 n/a 77 762010q3 71 77 89 72 92 n/a 43 64 52 81 48 64 n/a 76 762010q4 70 74 89 69 92 n/a 43 63 51 78 46 63 n/a 73 762011q1 69 76 88 67 92 n/a 42 64 50 77 46 62 n/a 72 762011q2 69 76 89 68 91 n/a 42 63 50 78 46 62 n/a 72 752011q3 68 69 88 68 91 n/a 40 62 50 79 45 61 n/a 71 762011q4 67 63 87 64 92 n/a 39 60 50 75 48 60 n/a 70 74

Variance07q1 ‐ 11q4 ‐33% ‐37% ‐13% ‐36% ‐8% n/a ‐61% ‐40% ‐50% ‐25% ‐52% ‐40% n/a ‐30% ‐26%Max ‐ 11q4 ‐33% ‐37% ‐13% ‐36% ‐8% n/a ‐61% ‐40% ‐50% ‐25% ‐52% ‐40% n/a ‐31% ‐26%11q3 ‐ 11q4 ‐2% ‐9% ‐2% ‐6% 1% n/a ‐3% ‐2% 1% ‐4% 7% ‐2% n/a ‐1% ‐2%10q4 ‐ 11q4 ‐4% ‐15% ‐3% ‐7% 0% n/a ‐9% ‐5% ‐1% ‐4% 3% ‐6% n/a ‐5% ‐2%

Regional Value Change IndexSingle Family Residential

The Single Family market continued to decline during the quarter with every market, except Phoenix and Dallas, declining.

Source: S&P/Case-Shiller Home Price Indices

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50

60

70

80

90

100

110

120

Inde

x (2

007q

1 =

100)



Variance07q1 ‐ 12q1 10% 3% 8% 7% 12% 9% ‐7% 1% ‐3% 10% ‐2% 15% 12% 10% 13%Max ‐ 12q1 0% ‐3% 0% ‐1% ‐21% ‐3% ‐10% ‐6% ‐5% ‐2% ‐5% ‐11% ‐3% ‐2% 0%11q4 ‐ 12q1 4% 2% 2% 2% 3% 3% 3% 3% 3% 3% 3% 4% 3% 3% 4%11q1 ‐ 12q1 17% 17% 16% 16% 18% 18% 15% 15% 15% 17% 18% 19% 19% 17% 16%

Regional Value Change IndexMultifamily Residential

Consistent growth continued across all markets in the Multifamily VCI,

averaging 3% for the quarter and 17% year‐over‐year.

Sources: REIS, Korpacz Real Estate Investor Surveys, and IREM Income/Expense Analysis: Conventional Apartments

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Distressed Real Estate Market Indicators

This section provides an analysis of recent indicators of real estate distress including:

Source: Capital IQ and Standard & Poor’s LCD “1Q12 Institutional Loan Default Quarterly Review”

I. Defaults none II. Bankruptcies Filed March 16, 2012 ‐ CC, LLC, dba Baymont Inn and Suites, filed a voluntary petition for reorganization under Chapter 11 in the US Bankruptcy Court for the Middle District of Florida. The debtor listed assets between $1 million to $10 million and debts between $10 million to $50 million. The main unsecured creditors were Altech Alarm & Data, Inc., Lowery, Weldon & Company, CPAs, P.A., and McClane Partners Law Firm, P.A. Bernard J. Morse of Morse & Gomez PA represented the debtor as its legal advisor.

March 6, 2012 ‐ Hardage Hotels I, LLC filed a voluntary petition for reorganization under Chapter 11 in the US Bankruptcy Court for the Western District of Texas. The debtor listed its assets of $39.35 million and liabilities of $31.09 million. The largest unsecured creditors include American Hotel Register Company, American Tex‐Chem Corporation, ECU Staffing Inc., El Paso Electric Co., HD Supply, Inc., Insight Enterprises Inc., Labor Pros, Levitz‐Zacks & Ciceric Inc., Sabre Inc. and TravelCLICK, Inc. The debtor is represented by Trey A. Monsour, Abigail Ottmers,Jarom Yates and Kim Morzak of of Haynes and Boone, LLP as its legal counsels.

March 5, 2012 ‐ Hotel Indigo at the Alamo filed a voluntary petition for reorganization under Chapter 11 in the US Bankruptcy Court for the Western District of Texas. The debtor listed its assets at $8.77 million and liabilities at $15 million. The largest unsecured creditors include First National Bank, Cairncross & Hempelmann PS, Ray, Valdez, Mcchristian & Jeans, PC and Brookhollow A‐1 LLC. The debtor is represented by J. Todd Malaise of Malaise Law Firm as its legal counsel.

12 months ending 3/31/12 1Q12

I. Defaults (institutional loans) 0 0

II. Bankruptcies Filed 82 18

III. M&A Transaction Cancellations 77 17

IV. Auditor Going Concern Doubts 11 5

Number

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March 1, 2012 ‐ American West Development, Inc. filed a voluntary petition for reorganization under Chapter 11 in the US Bankruptcy Court for the District of Nevada. The debtor listed assets of $55.39 million and liabilities of $207.69 million. The largest unsecured creditors include Bank of America Corporation, California Bank & Trust, Comerica Bank, Insco Insurance Services, Inc., Insurance Company of the West, Inc., JPMorgan Chase Bank, N.A., Keybank National Association, U.S. Bank National Association and Wells Fargo Bank, National Association. The debtor is represented by Brett A. Axelrod, Charles D. Axelrod and Micaela Rustia Moore of Fox Rothschild LLP as its legal counsels. The debtor also hired The Garden City Group, Inc. as its claims and noticing agent.

February 29, 2012 ‐ Laguna Brisas LLC filed a voluntary petition for reorganization under Chapter 11 in the US Bankruptcy Court for the Central District Of California. The debtor listed assets and liabilities between $10 million to $50 million. The main unsecured creditor was US Metro Bank. M. Jonathan Hayes of The Law Offices of M. Jonathan Hayes represented the debtor as its legal advisor.

February 24, 2012 ‐ Hearthstone Homes, Inc. filed a voluntary petition for reorganization under Chapter 11 in the US Bankruptcy Court for the District of Nebraska. The debtor listed its assets of $0.41 million and liabilities of $23.78 million. A & P Construction, A & P Construction, Christensen Lumber, Inc., Christensen Lumber, Inc., Imperial Tile Dist, Inc, Maverick Construction System, Nelson Builders, Peterson Building Group Inc, Poured Foundation Inc. and SKAR Advertising. The debtor is represented by Anna M. Bednar and Robert F. Craig of Craig Law PC as its legal counsels.

February 22, 2012 ‐ Gregory & Parker, Inc. filed a voluntary petition for reorganization under Chapter 11 in the US Bankruptcy Court for the Eastern District of North Carolina. The debtor listed its assets at $2.79 million and liabilities at $18.74 million. The largest unsecured creditor is Regions Bank. The debtor is represented by Richard D Sparkman of Richard D. Sparkman & Associates, P.A. as its legal counsel. James K. Tiller, CPA acted as accountant to the debtor.

February 21, 2012 ‐ Norman Northgard filed an involuntary petition against Alrose Allegria LLC for liquidation under Chapter 7 in the US Bankruptcy Court for the Eastern District of New York, Central Islip. The total claim amount against Alrose Allegria is $0.1 million.

February 17, 2012 ‐ Billings Ventures L.P. filed a voluntary petition for reorganization under Chapter 11 in the US Bankruptcy Court for the District of Montana. The debtor listed its assets of less than $0.05 million and liabilities in the range of $10 million to $50 million. The debtor is represented by James A. Patten of Patten Peterman Bekkedahl & Green as its legal counsels.

February 17, 2012 ‐ Warsaw Hotel Partners, LLC filed a voluntary petition for reorganization under Chapter 11 in the US Bankruptcy Court for the Southern District of Indiana. The debtor listed its assets in the range of $1 million to $10 million and liabilities in the range of $10 million to $50 million. The largest unsecured creditors include German American Capital Corporation. The debtor is represented by Edward R Cardoza, Elliott D. Levin and James E Rossow, Jr. of Rubin & Levin, P.C. as its legal counsels.

February 6, 2012 ‐ St. Simons Lodging, LLC filed a voluntary petition for reorganization under Chapter 11 in the U.S. Bankruptcy Court for the Southern District of Georgia. The debtor listed its assets in the range of $1 million to $10 million and liabilities in the range of $10 million to $50 million. The largest unsecured creditor includes Trout Properties, LLC. The debtor is represented by J. Carole Thompson Hord and John A. Christy of Schreeder Wheeler & Flint LLP and James B Durham and John P. Wright of Durham & Rizzi, PC as its legal counsels. The debtor paid a retainer of $25000 for the services to be rendered in connection with Chapter 11 case. The retainer is for both Durham & Rizzi, PC and co‐counsel Schreeder Wheeler & Flint LLP.

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February 2, 2012 ‐ Captainʹs Table Hotel, LLC filed a voluntary petition for reorganization under Chapter 11 in the US Bankruptcy Court for the Eastern District of California. The debtor listed assets of $13.22 million and liabilities of $31.33 million. The largest unsecured creditors include Auran Integrated Design and Construction, Blazona Concrete Construction, Inc., Diepenbrock Harrison, Hearn Construction, Inc., Hankin Specialty Equipment, Inc., Maloof Sports & Entertainment, Inc., OneWest Bank, FSB, Sysco Guest Supply, LLC, The Gualco Group, Inc. and USA Real Estate Investment Trust. The debtor is represented by Daniel S. Weiss as its legal counsel.

February 2, 2012 ‐ Costa Bonita Beach Resort, Inc. filed a voluntary petition for reorganization under Chapter 11 in the US Bankruptcy Court for the District of Puerto Rico. The debtor listed assets of $15.07 million and debts of $14.23 million. The main unsecured creditors were Specco, ETCON Inc., Flagship Resort Property SE, González‐Nieto Barea & Balzac, P.S.C., Inversiones Del Caribe Inc, and Prime Contractors. Charles Alfred Cuprill represented the debtor as its legal advisor.

February 2, 2012 ‐ Meecham Hospitality, LLC filed a voluntary petition for reorganization under Chapter 11 in the US Bankruptcy Court for the Northern District of Texas, Ft. Worth. The debtor listed assets worth $9.26 million and liabilities worth $14.83 million. The unsecured creditors include City Bank (Lubbock, TX), Hudson Energy Services, LLC, Otis Elevator Company and Premium Hotel Management, Inc. Clayton D. Ketter of Phillips Murrah P.C. and Jeffery D. Carruth of Weycer, Kaplan, Pulaski & Zuber, P.C. have been retained as legal counsels for the debtor.

January 27, 2012 ‐ Vintage Communities, Inc. filed a voluntary petition for liquidation under Chapter 7 in the US Bankruptcy Court for the Northern District of Georgia. The debtor listed its assets in the range of $10 million to $50 million and liabilities in the range of $100 million to $500 million. The debtor is represented by J. Nevin Smith of Smith Conerly LLP as its legal counsel. Robert Trauner has been appointed as the case trustee.

January 11, 2012 ‐ Stoner and Company filed a voluntary petition for reorganization under Chapter 11 in the US Bankruptcy Court for the District of Colorado. The debtor listed its assets at $16.10 million and liabilities at $11.92 million. The largest unsecured creditors include Anderson Consulting Engineers, Inc., The Light Center, Inc., Lindʹs Plumbing & Heating, Inc., Porzak Browning & Bushong LLP, Northern Engineering Services, Inc., Eheart Design Center, Inc., Soukup, Bush & Associates, CPAs, PC, Earth Engineering Consultants, Inc. and Pinnacle Consulting Group, Inc. The debtor is represented by Daniel W. Alexander as its legal counsel.

January 10, 2012 ‐ 17315 Collins Avenue, LLC filed a voluntary petition for reorganization under Chapter 11 in the US Bankruptcy Court for the Southern District of Florida. The debtor listed its assets at $41.35 million and liabilities at $40.17 million. The largest unsecured creditors include Kenco Hospitality, Inc., Hotwire Communications, L.L.C., Canon Financial Services, Inc., Florida Power & Light Company, RiesbergLaw, Park One of Florida, LLC, Indigo Services Corporation, Spotmasters Linens ʺRʺ US, Peoples Gas System, Inc. and ThyssenKrupp Elevator Corporation. The debtor is represented by Joshua W Dobin of Meland Russin Hellinger & Budwick, P.A. as its legal counsel.

January 4, 2012 ‐ Milestone Development LLC filed a voluntary petition for liquidation under Chapter 7 in the US Bankruptcy Court for the Northern District of Illinois. The debtor listed its liabilities in the range of $10 million to $50 million. The debtor is represented by Brian Ira Tanenbaum as its legal counsel. Cohen & Krol has been appointed as the case trustee.

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III. M&A Transaction Cancellations March 31, 2012 ‐ STAG Industrial, Inc. (NYSE: STIR) signed a contract to acquire three properties comprising approximately 639,000 square feet for $29 million in first quarter 2011. STAG Industrial, Inc. is at various stages of due diligence for these properties. The transaction is subject to significant conditions. STAG Industrial, Inc. cancelled the acquisition of three properties comprising approximately 639,000 square feet in first quarter 2012.

March 29, 2012 ‐ CMG Partners LLC made an unsolicited mini‐tender offer to acquire 0.21% stake in Retail Properties of America, Inc. for $3 million in cash on March 16, 2012. CMG Partners will acquire up to 1 million shares and will pay $3 per share. The Inland Western Board of Directors has unanimously determined that the offer is not in the best interests of the stockholders and suggests that stockholders reject the offer. CMG Partners LLC cancelled the acquisition of 0.21% stake in Retail Properties of America, Inc. on March 29, 2012.

March 27, 2012 ‐ GDI Property Group Pty Ltd agreed to acquire 215 Adelaide Street from Government of Singapore Investment Corporation Pte Ltd. for AUD 120 million on February 14, 2012. GDI Property Group Pty Ltd cancelled the acquisition of 215 Adelaide Street from Government of Singapore Investment Corporation Pte Ltd. on March 27, 2012. Transaction has been cancelled as the property is being sold to Pramerica Real Estate Investors.

March 26, 2012 ‐ Verdie Agence agreed to acquire Touromed from Crédit Agricole Private Equity. Touromed had revenues of €5 million in 2010. The deal is expected to close on April 1, 2011. Verdie Agence cancelled the acquisition of Touromed from Crédit Agricole Private Equity on March 26, 2012.

March 19, 2012 ‐ J.D. Nichols and Brian Lavin made an offer to acquire 75.92% stake in NTS Mortgage Income Fund for $2.4 million in cash on March 6, 2012. J.D. Nichols and Brian Lavin will pay $1 for each share of NTS common stock. J.D. Nichols and Brian Lavin already own 23.96% stake in NTS and will acquire 2.4 million shares. Gregory A. Wells will retain its 0.13% stake in NTS Mortgage. The purchase price will exclude any applicable withholding taxes. The expiration date of the offer is April 2, 2012, unless extended. The offer is not conditioned on any minimum number of shares being tendered. The Board of Directors of NTS does not express any opinion and will remain neutral with respect to the offer. J.D. Nichols and Brian Lavin cancelled the acquisition of 75.92% stake in NTS Mortgage Income Fund on March 19, 2012.

March 8, 2012 ‐ WRC Global Investors signed a sales and purchase agreement to acquire Building 6000 in South Charleston from the Dow Chemical Company (NYSE: DOW) on March 8, 2011. The sale is expected to close within 90 days. WRC Global Investors cancelled the acquisition of Building 6000 in South Charleston from the Dow Chemical Company (NYSE: DOW) on March 8, 2012.

February 29, 2012 ‐ GP Investments (BOVESPA:GPIV11) and Equity International made a preliminary and non‐binding proposal to acquire certain assets of Gafisa S.A. (BOVESPA:GFSA3) on February 2, 2012. The transaction is subject to certain requirements. The Gafisa Board of Directors has created a special committee of the Board to evaluate the offer. The Gafisa Board concluded that the offer significantly undervalues the Gafisa’s assets and businesses involved and implies substantial transaction costs and high execution risks. GP Investments and Equity International cancelled the acquisition of certain assets of Gafisa S.A. on February 29, 2012.

February 24, 2012 ‐ APC 2010 Investment, LLC agreed to acquire Wood Creek CPGF 22, LP from Century Properties Growth Fund XXII for $28 million on January 25, 2012. The total purchase price is subject to certain pro‐rations and adjustments at the closing. Under the terms of agreement, APC 2010 Investment is required to deliver a deposit of $0.5 million to First American Title Insurance Company, the escrow agent, within 2 business days following the effective date. The feasibility period ends on February 24, 2012. If the APC 2010 Investment

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fails to notify the partnership in writing of its intent to terminate the contract on or prior to the end of the feasibility period, the deposit will become non‐refundable. APC 2010 Investment has agreed to assume the mortgage loans on Wood Creek at closing, subject to lender approval. Federal Home Loan Mortgage Corporation provided loan for the transaction. APC 2010 Investment has until March 12, 2012 to obtain approval from the existing lender to assume Wood Creek’s mortgage loans. The closing of the deal is also subject to customary closing conditions and deliveries. The transaction is expected to close earlier of, either 20 days after APC 2010 Investment receives approval of the loan assumption, or April 11, 2012. Apartment Realty Advisors, Inc. acted as broker for Wood Creek CPGF 22. APC 2010 Investment, LLC cancelled the acquisition of Wood Creek CPGF 22, LP from Century Properties Growth Fund XXII on February 24, 2012.

February 24, 2012 ‐ EPN Investment Management LLC agreed to acquire seven US assets from Charter Hall Retail REIT (ASX: CQR) for $75 million on December 29, 2010. Under the terms of agreement, $22.7 million shall be paid by way of assumption of property‐level debt. The Properties reported Net Operating Income (NOI) of $7 million. The transaction is conditional to lender consent for three property level loans and satisfying consent and right of first offer conditions at the Hillsboro and Ocala properties. The consents are expected to be received by March 31, 2011. The transaction is expected to complete by October 2011. As per the revised terms, EPN Investment Management LLC agreed to acquire five US assets from Charter Hall Retail REIT for $46.3 million. EPN Investment Management LLC cancelled the acquisition of five US assets from Charter Hall Retail REIT on February 24, 2012.

February 23, 2012 ‐ CIM Group, Inc. made a bid to acquire Madison 92nd Street Associates LLC for $84.1 million on January 13, 2012. CIM Group is acting as the stalking horse bidder in the transaction. CIM Group would receive a $2.5 million break‐up fee if it loses the auction. Under a purchase agreement with CIM Group, the sale of Madison 92nd Street must close before April 16, 2012. CIM Group, Inc. cancelled the acqusiition of Madison 92nd Street Associates LLC on February 23, 2012.

February 7, 2012 ‐ AIMCO Properties LP agreed to acquire 36.77% stake in Consolidated Capital Institutional Properties/2, LP for $2.8 million on July 28, 2011. Under the terms of the transaction, each unit will be converted into the right to receive, at the election of the limited partner, either $8.45 in cash or a number of partnership common units of AIMCO calculated by dividing $8.45 by the average closing price of Apartment Investment and Management Company common stock, as reported on the New York Stock Exchange, over the ten consecutive trading days ending on the second trading day immediately prior to the effective time of the merger. Completion of the merger is subject to certain conditions, including approval by a majority in interest of the limited partners holding units and third‐party consents. The Board of Directors of AIMCO‐GP, Inc., the general partner of AIMCO Properties LP approved the deal. The majority in interest of the limited partners of Consolidated Capital Institutional Properties/2, LP have approved the agreement. As on November 15, 2011, the terms of the deal were revised. Under the new terms of the transaction, each unit will be converted into the right to receive, at the election of the limited partner, either $8.27 in cash or a number of partnership common units of AIMCO calculated by dividing $8.27 by the average closing price of Apartment Investment and Management Company common stock. Computershare Limited serves as transfer agent of Aimco common stock. AIMCO Properties LP cancelled the acquisition of 36.77% stake in Consolidated Capital Institutional Properties/2, LP on February 7, 2012.

February 5, 2012 ‐ Monkey Rock Group, Inc. (OTCBB: MKRO) entered into a real estate purchase agreement to acquire certain parcels of land from Destination Daytona, LLC for $11.5 million in cash on February 5, 2011. The agreement allows for a sixty day due diligence period, at the conclusion of which, the parties will have thirty days to close the transaction. During the due diligence period, Monkey Rock Group has the sole right to terminate the agreement by written notice delivered to Destination Daytona, LLC. Monkey Rock Group, Inc. cancelled the acquisition of certain parcels of land from Destination Daytona, LLC on February 5, 2012.

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February 1, 2012 ‐ Tabani Acquisitions LLC signed an earnest money contract to acquire 9.089 acre parcel of real estate adjacent to the Northgate Mall in Cincinnati, Ohio from Feldman Mall Properties, Inc. (OTCPK: FMLP) for $1.5 million in cash on September 9, 2011. The deal is subject to adjustment for customary prorations of expenses, closing is subject to a number of usual conditions. The deal is expected to close in the late fall of 2011. Tabani Acquisitions LLC cancelled the acquisition of 9.089 acre parcel of real estate adjacent to the Northgate Mall in Cincinnati, Ohio from Feldman Mall Properties, Inc. on February 1, 2012.

February 1, 2012 ‐ Timeshare Holdings, Inc. (OTCPK: TMSH) signed a purchase agreement to acquire Grand Hotel Dimyat for $21.7 million on February 1, 2011. Under the terms of the agreement, Timeshare Holdings will provide a down payment 10 million shares, which will be restricted for a period of one year per the agreement of its common stock. The common stock value will be applied to the total purchase price of $28 million. The hotel will operate as a wholly‐owned subsidiary of Timeshare under its previous management with an initial five‐year contract. Timeshare Holdings, Inc. cancelled the acquisition of Grand Hotel Dimyat on February 1, 2012.

January 20, 2012 ‐ ERP Operating Limited Partnership entered into an agreement to buy 26.5% interest in Archstone‐Smith Trust from Barclays Bank PLC and Banc of America Strategic Ventures, Inc. for $1.3 billion in cash on December 2, 2011. ERP Operating will fund the consideration through a combination of cash on hand, available borrowings under its $1.25 billion revolving credit facility, proceeds from the disposition of non‐core apartment assets, bank term debt and secured and unsecured debt and equity offerings and also through $1 billion bridge loan facility commitment from Morgan Stanley Senior Funding, Inc. The termination fee amounts to 3.5% of the purchase price paid to the Barclays Bank PLC and or Banc of America Strategic Ventures, Inc. in case where either of Barclays Bank PLC or Banc of America Strategic Ventures, Inc. sells 50% or more of its interests in the Archstone. A termination fee amounts to 3.5% is payable by ERP Operating. Transaction closing is contingent on the remaining significant Archstone‐Smith Trust owner, Lehman Brothers Real Estate Capital not exercising its right of first offer (ʺROFOʺ) to acquire this interest from the Barclays Bank PLC and Bank of America Corporation at the same price as agreed to by ERP Operating and certain other closing conditions and is not subject to a financing condition. The deal is subject to the antitrust approval including clearance by European Union antitrust regulatory authorities. If Lehman Brothers Real Estate Capital declines to exercise right and all other closing conditions are met, it is expected that the acquisition by ERP Operating would occur late in the first quarter of 2012. Post transaction, ERP Operating will have approval rights over certain major decisions including annual budgets and certain financings, refinancing, acquisitions and dispositions. ERP Operating has no rights or contractual obligations to acquire more than a 26.5% interest in Archstone. For the fourth quarter of 2011, ERP Operating will record approximately $5.8 million of transaction and financing expenses from this acquisition, which will impact ERP Operatingʹs earnings per share and funds from operations as defined by the National Association of Real Estate Investment Trusts, but not normalized funds from operations. ERP Operating Limited Partnership cancelled the acquisition of 26.5% interest in Archstone‐Smith Trust from Barclays Bank PLC and Banc of America Strategic Ventures, Inc. on January 20, 2012. Lehman Brothers Holdings exercised the right of first offer.

January 12, 2012 ‐ Winston Chung, a Chinese businessman agreed to acquire International Bay Clubs Inc. from Beverly Ray Parkhurst on August 5, 2011. The sale includes Balboa Bay Club & Resort and Newport Beach Country Club. The current management team will remain in place. David Wooten will remain President and Chief Executive Officer of International Bay Clubs. Henry Schielein will remain President and Chief Operating Officer of the Balboa Bay Club & Resort, and Perry Dickey will continue as President and Chief Operating Officer of the Newport Beach Country Club. Employees are expected to keep their current positions. The sale is dependent on getting the lease transferred to the Winston Chung. The deal is expected to close in 30 days. Winston Chung cancelled the acquisition of International Bay Clubs Inc. from Beverly Ray Parkhurst for $174.5

Page 21 of 26




million on January 12, 2012. Winston Chung was unable to come up with the funds necessary to complete the sale.

January 9, 2012 ‐ Vornado Realty Trust (NYSE: VNO) entered into a contract to acquire Marquand at 11 East 68th Street, Madison Avenue from ABRO Management Corp. for $170 million on September 23, 2011. Adam Spies and Douglas Harmon of Eastdil Secured marketed the property for ABRO. Vornado Realty Trust cancelled the acquisition of Marquand at 11 East 68th Street, Madison Avenue from ABRO Management Corp. on January 9, 2012.

IV. Auditor Going Concern Doubts March 30, 2012 ‐ Real Estate Associates Limited VII filed its 10‐K for the period ending Dec 31, 2011. In this report its auditor, Ernst & Young LLP, gave an unqualified opinion expressing doubt that the company can continue as a going concern.

March 29, 2012 ‐ Behringer Harvard Short Term Opportunity Fund I LP filed its 10‐K for the period ending Dec 31, 2011. In this report its auditor, Deloitte & Touche LLP, gave an unqualified opinion expressing doubt that the company can continue as a going concern.

March 27, 2012 ‐ Affordable Green Homes International, Inc. filed its 10‐K for the period ending Mar 31, 2011. In this report its auditor, Ronald R. Chadwick, PC, gave an unqualified opinion expressing doubt that the company can continue as a going concern.

March 13, 2012 ‐ Jmb 245 Park Avenue Associates Ltd. filed its 10‐K for the period ending Dec 31, 2011. In this report its auditor, KPMG LLP, gave an unqualified opinion expressing doubt that the company can continue as a going concern.

February 15, 2012 ‐ Paragon Real Estate Equity & Investment Trust filed its 10‐K for the period ending Dec 31, 2011. In this report its auditor, Boulay, Heutmaker, Zibell & Co., PLLP, gave an unqualified opinion expressing doubt that the company can continue as a going concern.

Page 22 of 26




Navigant’s Real Estate Investment Trust (REIT) Universe

Navigant’s Real Estate Investment Trust (REIT) Universe is outlined on the following pages, along with key performance measures to gauge the health of the public markets

in four sectors: office, industrial, retail, and residential.

Navigant’s REIT UniverseRelative Performance (%)

60.0

70.0

80.0

90.0

100.0

110.0

120.0

130.0

Office

Industrial

Retail

Residential

S&P 500 Index (^SPX)

Navigant’s REIT UniverseIndex Returns

-10%

0%

10%

20%

30%

40%

50%

Office

Industrial

Retail

Residential

3-Month Return 6-Month Return 12-Month Return

During 2012, the relative performance of the Office and Industrial REIT segments continue to lag the S&P 500.

All REIT segments experienced positive returns during the most

recent three months.

Source: Capital IQ Note: REITs selected from the FTSE NAREIT All REITs Index and S&P Equity Indexes (ranked within a category by equity market capitalization as of April 30, 2009).

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Navigant’s REIT Universe – Market Value Analysis

Segments/Companies 3‐Month 6‐Month 12‐Month Office:Alexandria Real Estate Equities Inc. ARE $73.13 $4,536.3 6.2% 19.3% 5.0%BioMed Realty Trust Inc. BMR 18.98 2,927.2 5.2% 34.6% 17.2%Boston Properties Inc. BXP 104.99 15,567.9 5.7% 18.9% 15.1%CommonWealth REIT CWH 18.62 1,558.9 11.9% ‐1.8% ‐16.8%Corporate Office Properties Trust OFC 23.21 1,672.0 9.3% 6.8% ‐31.0%Douglas Emmett Inc DEI 22.81 3,184.2 36.6% 45.9% 36.7%Franklin Street Properties Corp. FSP 10.60 879.1 6.5% ‐4.6% ‐23.3%Highwoods Properties Inc. HIW 33.32 2,421.2 12.4% 18.3% ‐3.6%Mack‐Cali Realty Corp. CLI 28.82 2,530.4 8.8% 8.7% ‐13.1%SL Green Realty Corp. SLG 77.55 6,697.8 16.7% 29.6% 12.8%

Industrial:DCT Industrial Trust Inc. DCT $5.90 $1,453.14 15.2% 34.5% 6.7%EastGroup Properties Inc. EGP 50.22 1,399.1 19.9% 36.7% 18.0%First Industrial Realty Trust Inc. FR 12.35 1,071.2 20.9% 54.6% 15.5%First Potomac Realty Trust FPO 12.09 611.0 ‐6.9% ‐2.1% ‐22.5%Monmouth Real Estate Investment Corp. MNR 9.74 391.2 8.9% 36.3% 36.8%Prologis, Inc. PLD 36.02 16,569.7 26.2% 48.9% n/a

Retail:Alexanderʹs Inc. ALX $393.88 $2,011.2 6.4% 9.1% ‐3.2%Equity One Inc. EQY 20.22 2,320.5 19.2% 27.6% 14.7%Federal Realty Investment Trust FRT 96.79 6,162.8 7.0% 19.1% 21.5%Kimco Realty Corporation KIM 19.26 7,850.7 18.8% 28.3% 5.3%The Macerich Company MAC 57.75 7,622.6 14.2% 35.5% 18.1%Regency Centers Corporation REG 44.48 3,999.8 18.2% 25.9% 12.3%Simon Property Group Inc. SPG 145.68 44,800.1 18.3% 38.7% 42.7%Tanger Factory Outlet Centers Inc. SKT 29.73 2,554.9 1.5% 22.0% 20.5%Taubman Centers Inc. TCO 72.95 4,235.3 17.8% 45.4% 41.7%Weingarten Realty Investors WRI 26.43 3,194.0 21.1% 24.9% 5.6%

Residential:American Campus Communities Inc. ACC $44.72 $3,339.5 12.3% 29.1% 51.0%Apartment Investment & Management Co. AIV 26.41 3,200.4 15.5% 19.8% 5.8%Avalonbay Communities Inc. AVB 141.35 13,477.3 8.5% 25.7% 29.5%BRE Properties Inc. BRE 50.55 3,900.6 2.6% 23.3% 25.5%Camden Property Trust CPT 65.75 5,181.4 16.7% 31.7% 25.1%Equity Residential EQR 62.62 18,801.1 11.1% 22.3% 13.4%Essex Property Trust Inc. ESS 151.51 5,274.0 10.0% 29.9% 32.2%Home Properties Inc. HME 61.01 2,951.6 6.2% 8.3% 30.6%Mid‐America Apartment Communities Inc. MAA 67.03 2,726.0 15.2% 21.9% 16.9%UDR, Inc. UDR 26.71 5,965.4 8.5% 23.0% 34.1%

% Change Market Capitalization

as of 3/31/12 ($mm) Stock Priceas of 3/31/12

Source: Capital IQ

Page 24 of 26




Navigant’s REIT Universe – Market Value Analysis (continued)

Segments/CompaniesEnterpriseValue Total Debt

Funds from Operations

EBITDA /(Interest Expense +

Preferred Dividends Paid)Total Debt /EBITDA

Total Debt /Enterprise Value

Office:Alexandria Real Estate Equities Inc. ARE $7,708.3 $2,820.8 $257.7 4.0x 7.8x 36.6%BioMed Realty Trust Inc. BMR 4,793.7 1,811.1 176.2 2.6x 6.4x 37.8%Boston Properties Inc. BXP 23,052.0 7,960.6 807.1 2.9x 6.9x 34.5%CommonWealth REIT CWH 5,808.1 3,778.6 276.8 2.5x 7.5x 65.1%Corporate Office Properties Trust OFC 4,206.4 2,420.8 88.0 2.6x 9.3x 57.5%Douglas Emmett Inc DEI 6,950.0 3,348.7 216.8 2.2x 9.9x 48.2%Franklin Street Properties Corp. FSP 1,304.3 494.0 74.5 6.2x 5.7x 37.9%Highwoods Properties Inc. HIW 4,491.3 1,936.2 197.5 2.6x 7.4x 43.1%Mack‐Cali Realty Corp. CLI 4,688.6 1,940.7 0.0 3.2x 4.8x 41.4%SL Green Realty Corp. SLG 13,659.0 6,099.9 370.3 2.1x 9.0x 44.7%

Industrial:DCT Industrial Trust Inc. DCT 2,916.0 1,300.4 110.6 2.5x 8.0x 44.6%EastGroup Properties Inc. EGP 2,234.4 841.3 82.0 3.1x 7.6x 37.7%First Industrial Realty Trust Inc. FR 2,588.1 1,443.6 79.7 1.7x 7.4x 55.8%First Potomac Realty Trust FPO 1,704.6 916.0 66.3 1.8x 9.2x 53.7%Monmouth Real Estate Investment Corp. MNR 686.7 256.1 28.5 1.8x 7.3x 37.3%Prologis, Inc. PLD 29,180.6 12,413.4 611.6 2.1x 10.8x 42.5%

Retail:Alexanderʹs Inc. ALX $2,839.9 $1,327.2 $114.6 3.2x 8.1x 46.7%Equity One Inc. EQY 3,849.3 1,399.0 119.0 2.3x 8.4x 36.3%Federal Realty Investment Trust FRT 8,329.2 2,117.9 257.0 3.6x 5.7x 25.4%Kimco Realty Corporation KIM 12,142.0 3,913.6 4.2 1.9x 7.1x 32.2%Macerich Co. MAC 12,112.7 4,317.4 432.1 4.0x 5.7x 35.6%Regency Centers Corporation REG 6,285.5 2,023.4 0.0 2.3x 6.2x 32.2%Simon Property Group Inc. SPG 63,665.5 22,809.0 2,516.8 3.2x 7.3x 35.8%Tanger Factory Outlet Centers Inc. SKT 3,640.4 1,038.7 144.5 3.6x 6.1x 28.5%Taubman Centers Inc. TCO 7,325.9 2,953.1 423.6 2.5x 8.0x 40.3%Weingarten Realty Investors WRI 5,870.2 2,498.2 178.9 2.1x 6.9x 42.6%

Residential:American Campus Communities Inc. ACC $4,839.5 $1,490.1 $136.9 3.4x 7.8x 30.8%Apartment Investment & Management Co. AIV 9,265.5 5,207.9 184.4 1.5x 9.3x 56.2%Avalonbay Communities Inc. AVB 16,629.8 3,380.3 442.9 3.8x 5.6x 20.3%BRE Properties Inc. BRE 5,569.9 1,654.7 154.4 3.1x 6.9x 29.7%Camden Property Trust CPT 7,741.8 2,442.7 222.0 3.0x 6.6x 31.6%Equity Residential EQR 28,971.8 9,441.6 767.0 2.5x 7.5x 32.6%Essex Property Trust Inc. ESS 7,819.3 2,345.6 210.9 3.4x 7.4x 30.0%Home Properties Inc. HME 5,862.7 2,687.7 205.0 2.6x 7.9x 45.8%Mid‐America Apartment Communities Inc. MAA 4,375.6 1,569.4 165.0 3.7x 6.8x 35.9%UDR, Inc. UDR 10,254.2 3,927.2 296.5 2.6x 9.3x 38.3%

RatiosDollars in Millions

Source: Capital IQ

Page 25 of 26




Notes

Enterprise Value (EV) = Common equity value + preferred equity + debt – cash & short‐term investments.

EBITDA = Earnings before interest, taxes, depreciation and amortization.

Funds from Operations (FFO): Net operating income ‐ gains or losses from sales of property + real estate depreciation.

Sources: Capital IQ, Bloomberg, S&P, CoStar, BOMA Experience and Exchange Report, Korpacz Real Estate Investor Surveys, Real Capital Analytics, Federal Reserve, Goldman Sachs, IREM, S&P/Case‐Schiller Index, and others as indicated.

Any public companies chosen for the “NCA Real Estate Investment Trust (REIT) Universe” are companies commonly used for industry information to show performance within a sector. They do not include all public companies that could be categorized within the sector and were not created as benchmarks; they do not imply benchmarking and do not constitute recommendations for a particular security and/or sector. The charts and graphs used in this report have been compiled by Navigant solely for purposes of illustration.

For further information on any of our Real Estate services, please contact: Edward R. Casas, Head of Navigant Capital Advisors, 847.583.1619, [email protected] Darin L. Buchalter, Head of Navigant’s Real Estate Practice, 415.356.7126, [email protected] To make changes to your Quarterly Dialogue subscription(s), please click here.

About Navigant Capital Advisors Navigant Capital Advisors is the dedicated corporate finance business unit of Navigant Consulting, Inc. (NYSE: NCI). Navigant is a specialized independent consulting firm providing financial, operational, dispute and regulatory advisory services to large companies, financial institutions, legal counsel and government agencies facing the challenges of uncertainty, risk, distress and significant change. We offer independent and objective advice supported by advanced technical skills, proven competence and in‐depth industry knowledge. Investment banking, private placement, merger, acquisition and divestiture services offered through Navigant Capital Advisors, LLC. Member FINRA/SIPC. ©2012 Navigant Capital Advisors, LLC. All rights reserved. Navigant Capital Advisors, LLC (Member FINRA, SIPC) is a wholly owned broker/dealer of Navigant Consulting, Inc. Navigant is not a certified public accounting firm and does not provide audit, attest, or public accounting services. See www.navigant.com/licensing for a complete listing of private investigator licenses.

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Real Estate Quarterly Dialogue 1Q12 v3 · Real Estate QUARTERLY DIALOGUE ... The commercial mortgage‐backed securities ... % of pool with full IOs 16.7% 8.3% 55.5%